By Julian Sawyer, Gemini’s Managing Director for Europe.
looks at how developments in fintech are impacting the payments landscape and what this means for the industry moving forward.
- Real-time payments (RTP) will grow rapidly across all categories globally and push incumbent banks, card networks, and payment service providers to innovate
Ever since their introduction over the past decade or so, instant payments have dramatically improved financial services from point of sale technology to ecommerce transactions, remittances, peer-to-peer payments, current accounts, and more.
Fintech communities in many countries that have built products on top of instant payments technology have pushed for improvement to RTP infrastructure to facilitate further growth and innovation of their platforms.
Looking ahead, recognising the virtuous cycle of infrastructure improvement and fintech innovation, governments, regulators, and industry bodies will accelerate the enabling of secure, instant payments 24 hours a day.
The bigger the country and more complex the market, the longer this will take. In an increasingly global payments market, the public and private sectors will establish worldwide standards to help countries interoperate.
Countries like the UK with more developed RTP infrastructure like the Faster Payments Service and more advanced fintech ecosystems will continue to have an edge in the space.
- Cross-border payments will be transformed to become more efficient and less expensive
Cross-border payments total hundreds of billions of dollars annually, with B2B transactions forming the largest share of value. Solutions for individuals and businesses alike can be expensive and slow, relying largely on correspondent banking networks.
Significantly busier remittance payment corridors, like GBP transfers from the UK to India, Nigeria, Pakistan, and Poland are also better served than others. Challenger solutions such as peer-to-peer remittance services have taken only a small chunk of the market, because of similar liquidity issues in certain currencies.
Stablecoins – decentralised digital currencies pegged to fiats – and applications built on top of them will streamline the complex, multi-stage process of moving funds around the world.
Business payments that currently take days and are subject to multiple checks and delays will be done instantaneously. Consumers – often lower income economic migrants – will be able to send money over the internet across borders immediately and cheaply with no need to visit a physical banking branch.
- Regulation, including Anti-Money Laundering and Know Your Customer rules, will continue to be strictly enforced across an evolving global payments ecosystem
Changing consumer behaviour is driving demand for faster payments — often across borders and jurisdictions — causing an inherent tension between the need for speed, while ensuring AML, KYC and sanction checks are in place. This is a hugely complex challenge, especially across different regulatory regimes, languages, and cultures.
The payments industry as a whole will increase efforts to find solutions to this issue. One possible outcome could be AML and KYC obligations and customer credentials shared between similar organisations.
- Payments as a utility becomes a possibility within domestic financial systems, especially like electricity or water
Decreasing clearing and settlement times for payments between customer accounts in different banks from a few days to doing it in a matter of seconds is increasingly important across financial services.
To meet demand for instant payments, fintechs can sign up to a faster payments initiative or service, and then implement compliance measures and necessary technical steps. However, fulfilling the requirements can be a costly and time-consuming burden, particularly for smaller, new entrants to the market.
To break down this barrier, the now nascent market of “payments-as-a-service” will develop quickly. Established players who have infrastructure in place to service their own needs will offer a ‘plug-and-play’ service to smaller fintechs who don’t have the resources and time to build it themselves. In this sense, payments-as-a-service will become a utility, with little differentiation in price and quality.
This will cause more collaboration across sectors, for example, partnerships between banks and social media or consumer technology companies. New payments providers will not need to operate the underlying banking layer, or even the servicing layer – just customer distribution.
- Blockchain technology will disrupt specific areas of the payments ecosystem — but not all
The financial services industry has largely reached a consensus around the value of blockchain technology. The debate has moved on from whether it will have a place in the modern financial system to where it can be applied and how it can help improve inefficiencies.
The payments ecosystem is one area where it is poised to have a big impact — from using decentralised currencies to improve cross-border payments, to supporting compliance efforts with on-chain identity management solutions. In many of the cases where it will be used, blockchain technology will be invisible to end users.
How widely the technology is adopted depends largely on the applications that are built on top of it. While the technology has reached a viable stage in its maturity, the industry surrounding and supporting it is still very much in its infancy. The next ten years hold great promise for blockchain to solve many of the points of friction in the payments system.